Crisis Management

Not to belabor a beaten down topic, but as we all know the story – and in many instances rehashed – versions of the Kinder Morgan fiasco and the subsequent fallout.  A perspective I haven’t seen addressed is human nature.  In a previous life, a role I held was to design and create contingency plans for telecom networks  – and subsequently data centers – in the event of a major outage.  The obvious corollary being a massive dividend cut (i.e., catastrophic failure).

As we create and manage our portfolios, most of us have established a set of rules to address diversification, segmentation and concentration.  One of these rules will normally relate to dividend cuts.  In fact, two of the three reasons Dividend Mantra cites are addressed through KMI’s action.

  1. The fundamentals of the company have changed.
  2. The dividend has been eliminated/reduced or held static for more than two years.
  3. The stock has become grossly overvalued.

Now that a month has elapsed since the event, some questions arise (yet again I admit to having too much time on my hands) can we answer the question on the number of investors who sold?  If not, how does their sell criteria differ?  As a point of reference, as of January 2, Jason has apparently made an exception to his own rules.

I included BHP Billiton in this analysis as they are widely held and froze their dividend.  To establish a baseline, I removed blogs classified as dormant by DivGro  (14).  I also removed 21 dormant blogs contained in my database.  The end result is:

  • 5 portfolios sold BBL (9.6%)
  • 15 portfolios sold KMI (19.5%)

I can understand the BBL percentage as some bloggers place dividend freezes on their watch list first.  But I am more perplexed by the KMI number.  80% of the DGI bloggers have chosen to retain their holdings!  So I guess the real questions are:

  • Is the downside now less than potential appreciation?
  • Are they frozen like deer in headlights?

Most disturbing (in my opinion) are the number of bloggers going dormant in the last few months.  Are (were?) they yield chasers that got burned?  As usual, more questions than I can derive plausible answers for.

 

 

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2 thoughts on “Crisis Management

  1. Interesting questions you pose. I think KMI trading at $13 is an opportunity stock. If I didn’t own 250 shares, I would be buying it up. Keep is mind the stock still has a yield over 3%. I am currently at a cost basis of $22 so I may still buy 250 shares to get my basis down to into the teens.

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  2. I might dip my toes in if it drops a little lower. Speculation on CNBC is BBL may cut since they did a write down today. I guess the real question was Do you have a sell rule and was it triggered? Thanks for the comment and the visit!

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